Ford profits fall on recall charges, higher costs

DETROIT -- Ford Motor Co. reported first-quarter net income of $1.6 billion, down $900 million from a year earlier, as revenue rose and profit margins shrank.

Pretax earnings were $2.2 billion, down $1.6 billion, or 42 percent, from a year earlier, when Ford posted its best quarter in the company’s 114-year history.

The automaker’s revenue rose 1.4 billion, or 4 percent, to $39.1 billion thanks to a strong sales mix. But profits were pinched by charges for recalls and higher parts costs for some of its 2016 launches.

Ford’s profit margins during the quarter fell 4.4 percentage points to 5.4 percent. Ford reported earnings per share of 40 cents, down from the first quarter of last year but better than the 35 cents analysts had expected.

“It was a solid quarter,” Ford CFO Bob Shanks told reporters on Thursday. “There were no surprises; it’s consistent with what we had expected.”

Ford took a $467 million warranty hit in the first quarter. That includes a $295 million charge for two recalls, one involving engines that could catch fire and the other involving door latches.

The automaker’s profits were driven by North America, where it made a $2 billion pre-tax profit, down $1.1 billion from a year earlier.

Ford made a pre-tax profit of $176 million in Europe, where it posted its eighth-consecutive quarterly profit. It also made $124 million in Asia Pacific, despite a “tough quarter” for China, Shanks said.

Ford lost $244 million in South America and $80 million in the Middle East and Africa.

“This quarter was an investment in Ford’s future,” CEO Mark Fields said in a statement.

Outlook

Ford reaffirmed its full-year guidance. It expects to make a pre-tax profit of $9 billion, down from $10.4 billion in 2016 as it invests in “emerging opportunities” like autonomous and electric vehicles.

It's in the midst of spending $4.5 billion through 2021 on 13 new electrified vehicles. It recently agreed to invest $1 billion in artificial intelligence startup Argo AI over five years. And, Ford is expanding Chariot, a Silicon Valley shuttle service it acquired last year.

Shanks said that the remainder of 2017 will be about even or better than Ford’s financial performance in 2016.

“This will be the toughest quarter,” he said, although he noted that Ford’s lowest profits of the year will come in the third quarter, because of seasonal timing.